Medtronic 2014 Annual Report Download - page 91

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Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company accounted for the acquisition of PEAK as a business combination using the acquisition method of accounting.
The assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date. The fair
values of the assets acquired and liabilities assumed are as follows:
(in millions)
Current assets $5
Property, plant, and equipment 5
Intangible assets 74
Goodwill 56
Total assets acquired 140
Current liabilities 10
Long-term deferred tax liabilities, net 17
Total liabilities assumed 27
Net assets acquired $ 113
Acquisition-Related Items
During fiscal year 2012, the Company recorded net charges from acquisition-related items of $12 million, primarily including
charges of $45 million related to the change in fair value of contingent consideration associated with acquisitions subsequent to
April 29, 2009. Additionally, in connection with the acquisitions of Salient and PEAK, the Company recognized gains of
$32 million and $6 million, respectively, on its previously-held investments. These amounts are included within acquisition-
related items in the consolidated statements of earnings.
Contingent Consideration
Certain of the Company’s business combinations and purchases of intellectual property involve the potential for the payment of
future contingent consideration upon the achievement of certain product development milestones and/or various other favorable
operating conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain
performance milestones, including attaining specified revenue levels or achieving product development targets. For business
combinations subsequent to April 24, 2009, a liability is recorded for the estimated fair value of the contingent consideration on
the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period with the change in fair
value recognized as income or expense within acquisition-related items in the consolidated statements of earnings. The
Company measures the liability on a recurring basis using Level 3 inputs. See Note 6 for further information regarding fair
value measurements.
The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment,
and projected revenues (for revenue-based considerations). Projected contingent payment amounts are discounted back to the
current period using a discounted cash flow model. Projected revenues are based on the Company’s most recent internal
operational budgets and long-range strategic plans. Increases (decreases) in projected revenues, probabilities of payment,
discount rates, or projected payment dates may result in higher (lower) fair value measurements. Fluctuations in any of the
inputs may result in a significantly lower (higher) fair value measurement.
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